Correlation Between PLATO GOLD and AvalonBay Communities

Can any of the company-specific risk be diversified away by investing in both PLATO GOLD and AvalonBay Communities at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining PLATO GOLD and AvalonBay Communities into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PLATO GOLD P and AvalonBay Communities, you can compare the effects of market volatilities on PLATO GOLD and AvalonBay Communities and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in PLATO GOLD with a short position of AvalonBay Communities. Check out your portfolio center. Please also check ongoing floating volatility patterns of PLATO GOLD and AvalonBay Communities.

Diversification Opportunities for PLATO GOLD and AvalonBay Communities

-0.58

Correlation Coefficient

PLATO GOLD  AvalonBay Communities

Excellent diversification

The 3 months correlation between PLATO and AvalonBay is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding PLATO GOLD P and AvalonBay Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AvalonBay Communities and PLATO GOLD is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on PLATO GOLD P are associated (or correlated) with AvalonBay Communities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AvalonBay Communities has no effect on the direction of PLATO GOLD i.e., PLATO GOLD and AvalonBay Communities go up and down completely randomly.

Pair Corralation between PLATO GOLD and AvalonBay Communities

Assuming the 90 days horizon PLATO GOLD P is expected to generate 40.25 times more return on investment than AvalonBay Communities. However, PLATO GOLD is 40.25 times more volatile than AvalonBay Communities. It trades about 0.16 of its potential returns per unit of risk. AvalonBay Communities is currently generating about -0.02 per unit of risk. If you would invest  0.40  in PLATO GOLD P on December 2, 2024 and sell it today you would earn a total of  0.25  from holding PLATO GOLD P or generate 62.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

PLATO GOLD P  vs.  AvalonBay Communities

PLATO GOLD P

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PLATO GOLD P are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PLATO GOLD reported solid returns over the last few months and may actually be approaching a breakup point.

AvalonBay Communities

Risk-Adjusted Performance

Very Weak

Over the last 90 days AvalonBay Communities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, AvalonBay Communities is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PLATO GOLD and AvalonBay Communities

The main advantage of trading using opposite PLATO GOLD and AvalonBay Communities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PLATO GOLD position performs unexpectedly, AvalonBay Communities can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in AvalonBay Communities will offset losses from the drop in AvalonBay Communities' long position.

The idea behind PLATO GOLD P and AvalonBay Communities pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.